andrew ross sorkin and steve liesman. joe is out sick. we hope he's feeling better. futures are rebounding a bit. stocks finished near session lows yesterday, down 185 points at the end of the day. all the major s&p sectors closed in negative territory. nasdaq and russell 2,000 are now down more than 10% since the highs they reached back this mid september. the green arrows will be welcome to the bulls today. also, the ceo of mellon will be joining us to talk about the markets. as we've been talking about, the biggest issue for the markets right now seems to be the uncertainty surrounding the fiscal cliff. yesterday business leaders urged president obama and lawmakers to prevent a year end across board tax rise that will go into act

unless congress acts. >> he understands it requires a combination of tax increases and title refor and discretionary spending cuts that dnl democrats and republicans have to work together. i'm is sure there will be a lot of forth and back between republicans and democrats, the congress and the president as they start to work their way to a deal. but i'd say there's strong recognition of the significant of getting a deal for the ben fft t benefit of the american public. >> this is all about trying to make american business more competitive, trying to have a fair balanced approach to tax refo reform. the president was clear he wants a balanced approach and we were clear we are behind him. >> top the president and top

member of congress will be meeting. cnbc is urging leaders to rise above partisan rhetoric to try to find a solution and in that spirit, we have two guest hosts. first of all, george p. bush, and jared bernstein, both joining us to talk about politics and what we're facing here in this nation and where they think we could find compromise. and we're also watching the situation in the middle east. israel launching a major offensive against palestinian militants in gaza. israeli aircraft tanks have pounded the coastal strip. in response more than 100 rockets have been fired. martin fletcher will join us with the latest. oil prices off by about nine cents. crude oil at this point 86.23. steve, a lot of ground to cover and you have more of our other headlines, as well.

thanks for being here. >> good to be here. china's ruling communist party unveiling its new leadership team today. vice president xi jinping taking over from hu jintao. he'll head a team of seven members in the new politburo standing committee compared to nine. they'll have to tackle everything from social unrest to issues with domestic and global economics. back here in the u.s., reports from walmart and target. at 8:30, we get weekly jobless claims. october consumer price index. and the november empire state survey. in corporate news, bp expected to pay a record u.s. criminal penalty and plead guilty to criminal misconduct in the 2010 deepwater horizon disaster, a plea deal reached with the department of justice reportedly may be announced as soon as today. reuters says bp will plead guilty in exchange for a waiver

of future prosecution on the charges. bp says it is in discussions, but no final agreement has been reached yet. >> fun to have you here today. we do hope mr. kernen get better very soon. he's not normally sick. >> he never calls out sick. so he must be really sick. >> i think there's a flu going around. >> convenient for all of us. i took chips out of his bag yesterday and now i'm -- >> who is the guy sitting in his seat? >> can we get some lie sole over here? >> let's get back to the topic dominating the conversation from wall street to washington right now. of course it is the looming fiscal cliff. we have made it a bit of a drinking game for those playing at home. i sat down with one of the

democratic congressman barney frank and we talked about it. >> sequestration is a terrible idea and that can be very disruptive and if we go into sequestration, yeah, i think that's awful. if the taxes went up on everybody for a month or two, it would be a temporary bump, it would mean slowing down expansion which i think is coming, but you could undo it. >> so the most interesting thing barney frank said yesterday was he believes that it is a bungee cord, if you will, meaning he expects and almost is pushing for everybody to go over the cliff at least for a couple weeks and believes that the 39.6 number is still on the table and that the can democrats and the obama administration still have the mandate. >> you're talking higher marginal rate ps p. >> yes. he doesn't believe there are not enough deductions. so many of the ceos that came out of that meeting seemed to be

wink winwink, nod nod, says may he's not just talking 35%. deductions plus. >> i thought for sure raising the rate is on the table. that there will be no deal without raising the rate on the wealthy. >> the idea is raising the amount of taxes that wealthy pay and you can get there two different ways. one is by raising the marginal rate, one is raising the effective rate. >> but i don't. >> i've heard that as a way of stopping raising the rate. i don't think there's any discussion -- there will be no deal without eliminating the burke tax cuts on the wealthy. >> i think people are coming around to that view. >> but this is the republican view. >> but i'm saying --

>> if you listened to the president carefully last friday -- >> i'm not ed advocating either friday. >> the president last friday -- this is why i think people read too much into it. he never said 39.6. he never said 250 and above. >> although the white house spokesman says, no, he's very much in favor of the actual margin all rate going up. so it's been a discussion that's gone back and forth. you had boehner's position from the -- >> i don't want to anger the viewers, you but i think they're looking at obama's words the same way they look it at the polls with the kind of sense of here's what i want to believe. >> if they lose, do they go along with that and say we will accept that or do they push it over the fiscal cliff. you have people on the right and the left who are saying go over.

>> in the press conference yesterday, my read of what obama said was we're raising the rates and we're put a structure for eliminating entitlements. >> correct. but if we're talking about rates, if you were playing joe, you would hear that the argument would be that this will never actually work. republicans won't go loochialon it. so some people were suggesting maybe there is a way to do 35% and get rid of deductions. >> but remember was it geithner on -- today is thursday. so this would have been tuesday. he said people are diluting themselves to think we can get where we need to get with loopholes. and i don't know about the right max, but my understanding is i don't think taking off the rise

nat mayor begrginal rates is th beginning and ending. >> i think if you look at overhauling the tax code over a all, if you can eliminate the loopholes and deductions, that's a pretty important argument. if you want to look at a fair tax code where you're not getting off because you have something you can write-off over here, if you get a much tlflatt tax code, so people don't get easy ways s ts to get out of t there's an argument for that, too. if you go on the higher man begin al tax rate, you may lose your opportunity to flatten out the tax code. >> having spent a couple hours in washington yesterday, talk about rising above --

>> did take you a shower when we got back? >> we are so much farther apart than i ever imagined. i actually think we're closer together on this set oftentimes than it seemed like we were yesterday. it just felt like there was no way. >> you're not hearing any compromise on the republican part? >> it felt like it was wider, not closer. >> did you hear the president made a specific point of isolating house republicans. he said the people have spoken on the presidency, they've spoken in the senate and the only ones who are standing in the way of the deal are the house republicans. >> house republicans will say people have also spoken here and there's 100 of them. >> the question becomes if you

are a house republican, do you feel as if your incumbency is endangered? >> if you go along with it. >> you think you personally have a mandate to block, it's your personal role on do that. i think it's less about everybody else. by the way, the story in washington, this is all they actually really talked about, the petraeus thing is out of control at this point. >> i've been getting my information through leno and letterman and jon stewart. >> do we have the clip of barney on general petraeus from yesterday? roll that for a second. >> having for a long time argued that my sex life was none of the public's business, i extend the same courtesy to general petraeus and general allen, the notion that you are in trouble for sending flirtatious e-mails is very odd, but i am

disappointed when i went to work for the mayor of boston 45 years ago, i was told seriously, hey, kid, there's one thing you you got to remember. you never write when you can talk, you never talk when you can nod, and you neff nod when you can wink. and why these two very intelligent men were sending these embarrassing e-mails is absolutely baffling. >> a lesson for all of us to remember. so remember to wink nod and -- >> is he right, is there anything more than to this than just the exposure of a public figure's sex life? >> the question is whether there were see credit s secrets exposed. >> it's maybe not so much about the affair about the issues this benghazi that were raised and who whole other series and the loss

of support. it's a pretty interesting piece worth reading. >> futures are indicated higher after the markets closed down again. indicated up about 34. in europe this morning, we've been taking a look and seeing at this point at least some modest red arrows. declines of the ftse at this point down by about 19 points. cac off by five. germany, the dax down by half a percent. and asia overnight, a drop in the hang seng. nikkei up by 1.9%. oil prices will be watched closely today. we have had numbers we'll be expecting later, but really it's what's been happening in the middle east. you can see now down about 13, but that's after a big bounce yesterday. ten year note is yields below

6%. gld rises are indicated gold about $6. >> type for the global markets report. kelly, good interview with austan goolsbee this morning. >> hi, steve, thanks very much. he did say he expects a last celebrity death match before there's any major fiscal agreement to be reached. so maybe suggests some cautious in the markets. we're seeing more of it today. i wanted to start off by showing a look here at italy and spain. this comes after we got the gdp figures for the third quarter, which were very slowly watched. and the problem is they showed a

decline of 0.1%. so europe is officially in recession. the trouble is the decline was roughly in line with expectations. so dead in italy tick up a bit. off sit picture in spain. so not strong but still expects caution. on the equity side, we're seeing red arrows for the most part. the xetra dax down better than half a percent as the german economy raising some eyebrows. the cac 40 down 0.2%. the ibex trying to buck the trend and aed 0.4% this morning. but keeping with the sort of grim theme that's playing out, h and m reported numbers. they came out sharply negative rely it difference to what was expected. indicating softness in demand.

here is just a seven day chart. but certainly as we gear up for walmart and target in the ut.s. increasing contrast. what's happening on the eurozone side. expects 2.5% contraction in the economy next year as the macro situation gets worse, the debt dry sis will only be called less resolvab resolvable. >> kelly, thank you very much. when we come back on squawk, we we are question wling what's rey at stake. is it truly vital that a deal be reach some had you can ask the ceo of dravis. he understands what could happen in the worst case scenario. having you ship my gifts couldn't be easier.

well, having a ton of locations doesn't hurt. and my daughter loves the santa. oh, ah sir. that is a customer. let's not tell mom. [ male announcer ] break from the holiday stress. fedex office.

the dow is down about 8% from october.

jonathan, thanks for joining us. >> good to be here. >> first thing i'm interested in is the market seemed to be surprised that obama won. is the market waking up and realizing he was reelected? >> i think it was less of a surprise but a dose of reality hitting. i think the pundits had it going a lot of different ways. but the real question is what happens next and that's what's got the markets scared. which is the fiscal cliff and the long term stability of the ability of people to work together. >> it seems like the conventional wisdom, mostle polls showed the president would win, most of the pundits from the state up level suggested that. i would have said that's going to happen and we'll be right back to the fiscal cliff problem.

it seems like could you have gain this had out on the monday before if not a week earlier. >> i think most of us who look at long terp trends say what does it mean not for the next couple of months because that's the real news story, but the real investment story is what does this mean two, three, five years down the road. you're looking at interest rates at an all-time low and that's not betwee not good. the question is when does it happen or do you believe low for long. >> so should we talk about what people should be doing with their money? i noticed in the notes what you said was people are taking a lot of risks by doing what they think is not taking risks, by being in bonds. that that's where the real risk is in the market. >> bonds are not inherently a bad investment and we don't advocate you get out of bonds. but balance doesn't mean you move 100% to a bond portfolio. let me give you one data point. it in the last five years, the amount of assets and intermediate term bond funds,

which is now the largest cat -- >> five to seven. >> i'm sorry, in the last ten year, that's gone up more than five fold. and that's all been funded by money coming out of equity. so people have said i'll go into the secure investment which is bonds. the problem with that scenario is that we're at the end of a 30 year secular decline in interest rates. so at some point, they go the other direction and that's not a good scenario. >> and it's hard to imagine a say their i don't where for example you have the same kind of decline in interest rates which raises the principal value of the bond. you went from what? five down to one or one and a half on the ten year, right? and you you can't go from one and a half i don't think down to a half. we wouldn't be a japan scenario. >> potentially, but i don't think it's the good bet. long term, even in that 30 year secular decline, you had 12 different periods were rates rose by over 100 basis points within a short term period of time. when that happen, people get

hurt. let me give you the sensitivity analysis. if rates move 50 basis points on the ten year, that give its you about a 2% loss of principal. if they move 150, you'll lose 10%. 300, you'll lose 20%. >> what's the right balance then? if at a normal time at a normal interest rate, i'm a guy that wants to go 50/50 bond equities, are you saying in this environment i should be 75 equities, 25 bonds because of the risk? >> yeah, i think the problem is nobody is 50/50. today people are sitting at 80% this bonds. 10% quit tis and a little bit of cash. here's the big issue. americans need to retire. 75% of them have already said they don't have enough money. 40% said they'll never have enough money. so they're funding their lon term liability which is retirement 15 years, on average 58 years old, and they're funding it with a security that's at the end of its peak cycle. so usual getting zero rate of

return and you're saying i'll fund the liability by an investment that i'm guaranteed to lose money in. the world is more complicated. it's not 50 stock and 50 bond. so you have to say i need to start to move into a more balanced portfolio. the big problem people have is they think it's a binary switch. i go from stocks to bonds. maybe risky people and speculate tors do that. but it means i need to start to lessen my bond position, because more balanced. buy global bond, buy good u.s. and foreign companies, take advantage of the emerging markets. >> does that move stuff out of bonds or the new money goes in to other areas? >> i think you start to move money out of bounds. average endowment in the united states is probably 40% to 50% this equity like securities. look at the u.s. retail investor and you're seeing somebody who is almost 80% in bonds.

>> sounds like you're saying the opposite of the criticism that ben bernanke gets. he has been criticized for pushing people into risky assets through low interest rates. it sounds like you would not have that criticism. that what he's doing is the right thing by pushing people into equities. >> i think most people look at it and say if you believe in mean reversion, if you believe that there is value in companies, look at corporate america, corporate america has never been this strong. this is very powerful engine. at some point when that engine gets unlocked, here, great places in europe, overseas, that will drive real returns. it may not be 10% to 15%, but 6% to 8% is a lot better than losing money because of inflation and the chance rates go higher. >> jon, thanks for coming in. when we come back, i don't understand the fiscal cliff. the global markets are also watching the situation in the middle east. israel launching a major offensive against palestinian

militants in gaza killing the military commander of hamas in an air strike. mar ten flettin fletcher will j with the latest. if congress fails to agree on a plan to avoid the fiscal cliff, it will result in over $40 million in funding cuts for the maternal and child health block grant resulting in 5 million less families served. if you are one of the millions of men

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welcome back to "squawk box." joe is out sick today and we wish him the best. in our headlines this morning, global gold demand dropping 11% in the third quarter from record levels seen in the same period last year. the world gold council citing fading chinese fervor. meantime stronger indian demand prevented a larger fall. you're right, kansas. >> i like kansas, but -- >> i've seen them in concert recently. >> there's an app you can put it up to any music and it will tell what you it is. >> name that tune for old folks. >> that is true. also texas vumt instrument cutting down 1700 jobs to focus on chips for more profitable markets like cars and home appliances. >> and then there are my kids

who hear a song once an know every word of it. it's that age where you just learn that stuff and -- >> still a lot of brain cells at that age. >> we have some serious news. violence in the middle east. martin fletcher joins us with the latest there tel aviv. >> reporter: israel is on the edge here with these attacks against the palestinian hamas. they assassinateded the leader and that has kicked off the violence that has everybody speculating that this could end in a full scale war. israel has troops poised on the edge of gaza, they've called up reserve troops. there have been reports of tanks moving south. israel's goal is to stop the rocket attacks from gaza into israel. there's been about over 800 rocket attacks this year, 100 in the five days last week alone. so israel has been targeting the

stockpiles. the palestinians this morning alone fired about 130 rockets in to israel. israel's homemade anti-rocket defense system knocked down about 50, but one if the through and killed three israeli citizens in an apartment building in the south. and at the same time, israel has been attacking pat less contile targets all across the strip, targeting also hamas leaders. israeli commander in the south said that yesterday's assassination of the hamas leader he said, quote, is just the beginning. and the australia,prime ministe operation could be expanded. so israel will try to knock out the rocket systems. this they don't, anything could happen. about half an hour ago, the israeli defense minister said

that the operation could go -- that israel will continue the operation, will do anything it takes to knock out that rocket threat. so the fear is that israel and the palestinians in gaza on the edge of a full scale war now. >> steve liesman here. we don't pay attention to these things until they flare up the way they have just now. i want to get the tale of the tape here. there were 100 rockets fired into israel from gaza which precipitated the israeli strike. because everything quiet before that, had there been any unrest there, any signs that this was going to blow up like this? >> you're right, we visit this whenever there is a real peak in violence. but there is a rhythm of violence all the time. but the moment they said this is enough was about ten days ago when palestinians small arms fire hit an israeli jeep and wounded four soldiers and israel said enough. there have been other attacks

ongoing over the last months, some major in which there was an attack which killed a number of israeli soldiers. israel has also been attacking palestinian targets. so there has been a rhythm of violence that is below the boiling point if you like. but israel said last week when the soldiers were killed so far and no further. >> hamas had to know, though that firing 100 rockets into israel would precipitate at least some form of forceful response from israel. is that what they wanted? >> it's not what they wanted at all. they must have you said stood that was happening. israel very proud today and yesterday of what they call their plan of deception which was to lull a false sense of quiet. there was focus on other areas. israel believed that they were lulling the palestinians in to this false sense of confidence. and i guess it worked because the hamas militant lead who are

they killed yesterday in the attack, he's a guy who has been underground for years. he's very hard to find. yet yesterday he was driving along in a car in the streets in gaza with three other people in the car. so it appears that israel's plan of deception actually worked. so to answer your question, apparently hamas was not expecting this attack. >> that's what i don't understand. how could you launch 100 missiles and what would you expect to happen? >> that's a good question. the answer is i don't really know. you would expect to get lacked and in fact they did. but the rules of this game if you like between the palestinians and israel have been changing. and that's why they attacked. they did attack israeli soldiers across the fence hitting that jeep with the soldiers in it.

palestinians and especially hamas in gaza seem to believe that when egypt was taken over by the muslim brotherhood, the muslim brotherhood who if you like are hamas' dig brother, they felt themselves safer under the protection of the muslim brotherhood in exwiptd, they felt safer. so they felt they were able to provoke to push israel and israel at the a serb point said enough is enough. yeah, you'd expect that you would think they would expect to get attacked. >> one more quick question. egypt recalling its ambassador, how serious a response is that? >> i think it's to be expected. israel sent its ambassador home from egypt saying it was planned of course. who knows. i think it's a serious moment and at play of course is the peace agreement between israel and egypt. another reason hamas felt safer because they felt israel would do anything at all to not

provoke egypt into abandoning peace. so very serious. >> martin fletcher, thank you for your great report. you're the best in the business. >> a fascinating report. thank you, martin. back to some business here in the united states. with a week to go before the official kickoff to holiday shopping season, it is a big day for retail today. we'll be getting quarterly results from walmart, target, both of these companies before the bell. john lawrence covers the sector for stevens. john, first of all, what can we expect from these two companies with the earnings coming out and what are you seeing with how americans are feeling as we head into the crucial retail season? >> certainly in the case of walmart i think we'll see that they're very bullish on what they've been able to do in the marketplace. some of the things that they've got planned for black friday, pretty aggressive. certainly the last several quarters, they're riding on a

lot of good sales momentum because of these initiatives over the last couple year. i think we'll continue to see that. some of these ideas they put in place like the one hour guarantee for black friday and some of the announcements with -- at the end of the day, walmart when they're priced right, give that value to the customer and they're in stock, they do very well. and we continue to see that continuing. >> in terms of being priced right, is that a reflection of the sentiment of the nation right now just how consumers are feeling or where do you think the shopper you can the american shopper does stand? >> for the last couple years, you look at that customer is looking at the unemployment number, you look at rising gas prices. there's a new norm we think for that customer. he's looking for value. and once again, you look at the ad that walmart's coming with, the ipad for $399, then walmart will throw in the $75 gift card

on top of that. that's the type of value that can make make a decision to spend or not spend and that's what walmart's been able to to and customers trust that value. >> so if walmart is able to do that to offer prices like that, what does it mean for margins for the company? >> certainly that's been the question as they get the sales back, investors, can they invest in price and be able to leverage that. we think walmart, the size and the scope of the company, they've always been very lean and cost efficient. they're looking at so many options to be able to continue this productivity curve. we think they can find those costs to be able to cut to continue this investment in price. >> so you would say buy. >> absolutely. >> john, thank you very much. appreciate your time. >> thank you. if you have any comments, questions about anything you see here, squawk@cnbc.com. coming up, bank stocks have been among the biggest losers in the

last week. the main reason, you guessed it, the fiscal cliff. we'll ask a top ranked analyst how investors in fiscal cliffs should be playing the current environment when squawk returns.

many sectors of the economy would be directly affected if the u.s. economy goes off the fiscal cliff. not the least of which, the financials. we were talking about the white house and the meeting that happened yesterday. only ken chenault, of all the financials, and i don't know if you put him in the traditional

category, not a classic wall street guy, is that a problem? >> i think that was an omission, there were no large commercial bankers or wall street bankers in that meeting yesterday. so i thought that was quite interesting that the white house chose not to invite anyone. >> where are you on on financials right now? the stocks have come off. it's been a horrific little ride here. >> it has. the bank stocks have been one of the best performing sectors going into the third quarter. they're up over 20%. they've been one of the weakest sectors since the third quarter results. and i think what's happened is this fiscal cliff has everybody concerned especially bank stock investors. because interest rates remain low and there's a feeling that these rates will remain low for a really long time. >> among the companies out there, is there one or two that you buy into and consider this a dip? >> yes, there's one in particular. bbnt out of north carolina is one of our best regional banks in the united states. it was hit especially hard since the third quarter results because their net interest mar

kin came under greater pressure than most expected. >> we have a few round of stress tests that will happen in the new year. what is the impact of that? >> the stress tests which are done now handlely because of dodd-frank will be kicked off in january when the banks submit their numbers. later today the scenarios will be announced and that will determine whether they can raise their dividends and do buy backs. >>dy hear you say you have a negative outlook on banks because interest rates will remain low? >> not a negative outlook on banks. it will just be a challenge for the banks. >> cost of funds is what right now, zero. >> anywhere from 20 to 40 basis points. >> and they can go out and lend if they want at what rate? >> anywhere from i would say at the short end of the curve

meaning the prime rated loans at around 3% to 4%. >> so 300 to 400 basis points on the short end. >> and the longer end probably closer to four, five years. >> how much lower is that than normal? >> spreads are actually pretty good today. >> so the net interest margin is about where it normally is. >> it's come down a bit. >> so why are you talking about pressure on the banks? >> because security portfolios are rolling over and yields are dropping. >> so no sevens or eights or nines out there. >> correct. >> but that has nothing to do with the current lending environment cannot lucrative. if they make the loan now, they make the same 300 or 400 they used to make when interest rates were 3% and they made a loan at 8%. >> totally agree. and the problem is costs now. the banks have to lower their costs and the regulatory costs are so high because of

dodd-frank. >> what's your over/under on citigroup? >> i think citi is probably one of the best values out there because the change in management will shake the company up. >> what are you expecting to actually do? >> i think what you look at o'neal and the chairman's track record at bank hawaii and you look at what he did there h-- >> have we decided o'neal is running the bank? >> if you look at what happened at ubs, i think that's a nice preamble to what citi can do. >> is there a dividend from sun trust b of a thatky collect a dividend on? >> spot on. that's the real story coming in the spring. citigroup, bank of america, regents and sun trust. >> they'll tax it at a higher rate. >> at least they're taxing something as opposed to hog. they certain can't raise them. so you think all three banks as a result of the upcoming stress tests will be able to do what,

buy backs and dividends? >> i think there's a very good probability that all four, sun trust, reregents, bank of ameri and citi will be given the opportunity to both raise their dividends and buy backs. >> we'll have to run, but i've been a little bit of a mergers guy. do you think that we'll see any consolidation in the financials in the new year? this past year or two, it's not been a lot. a lot after the crisis. >> you're absolutely right. you go back to the early '90s when there was massive consolidation, we haven't seen it yet. we will see it, but you you said in the new year. i don't think we see right off the bat. we need who are cost pressures to drive it which is probablied to toward the end oof next year. >> all right. we'll leave it there. thanks for coming in. coming up, a chance to head to the chairs. chat more about the off beat stories of the morning. and then later on squawk, a news

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[ male announcer ] break from the holiday stress. ship fedex express by december 22nd for christmas delivery. welcome back, everybody. we are in chairs this morning looking through some of the papers. andrew has a story about caffeinated drinks.

>> we drink a lot of coffee on this show. >> i drink all decaf. >> even when i'm not anchoring i drink coffee. >> i sometimes drink a diet coke. >> that's when i know you've been up way too late. >> five-hour energy, monster, red bull, all of this, there's an article in "the new york times" 13 deaths have been reported to the fda from the company, actually, that owns five-hour energy suggesting there might be a connection, there may not be a connection but there were people who said i had five-hour energy and they died and now i don't want to make too much of a connection. >> i only read the headlines. i didn't dig deep into the story. what were the complaints, high caffeine led to heart attack? >> in every instance it's unclear and there's no proof of a true connection and also suggested there was over 2,000 emergency room visits over the

past couple years. >> i've been wondering about this from day one. >> monster and red bull, all of these drinks, it's about two coffees. it's not much more than that. that was the most interesting thing. >> it's very concentrated. i had it once, i had a gig to play in boston after anchoring "squawk box" in the morning. i ended up there at 10:00 going on stage and my fingers were shaking. i could barely play because my fingers -- i never understood, if one cup of coffee is enough and it gets you going, how can you take such a concentrated amount of it? >> you remember jolt cola? >> absolutely. >> i never drank it but there was guy miles drank a six-pack of it, and ended up running around the room all the time and never wrote his paper and then stayed under his desk the rest of the time.

>> monster drinks there was speculation, coca-cola was considering buying them. >> the latest advertising of five-hour thing, we've interviewed 2,300 doctors, something like that, and it doesn't quite put the physician's stamp of approval on it but it kind of has that image. >> doesn't look like a drink. it looks like medicine in some ways. worth pointing out there is no conclusive evidence on either side of it. >> the company reported it themselves. >> they did report this themselves and there's real questions as to whether it is these drinks or not and people can blame things on all sorts of things. >> i stay away from caffeine just because i used to be a big addict, i would drink two or three cups a day when i was pregnant i couldn't drink it, got the headaches, and never went back to it. steve you went on a fishing trip monday. >> we didn't catch many fish but

we did get a tour of the devastation, i can't describe how extensive of what it was and what we saw and how my heart goes out to these people and how many years rebuilding. one guy's dock on another guy's dock and twisted boardwalk like an earthquake had come through and twisted these docks and we saw boats in back yards and you just can't feel enough sympathy for what these people are going to go through over the next several years rebuilding and we're just thinking of you and we saw what was out there and it was just heartbreaking. >> a lot of ways to raise money, fund-raising. when we come back, quarterly results from walmart and target. from currency trading for a few

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fiscal issues facing the nation. >> we are not going to hurt our economy an make job creation more difficult. >> fair-minded people can come to an agreement that does not cause the economy to go back into recession. >> a double dose, george p. bush and jared bernstein, here on how the sides can reach a compromise. it's an open house on real estate. we're going to take a look at what a recovery in the industry could mean for the economy. plus private equity giant wilbur ross is here, his thoughts on business opportunity and the economy. the second hour of "squawk box" begins right now.

good morning and welcome to "squawk box." i'm andrew ross sorkin along with becky quick and steve liesman. joe is out today, he's sick, we hope he gets better very soon. the dow would open up 20 points higher, s&p 3.5 and the nasdaq would be up as well. wall street's worries about the fiscal cliff clearly manifesting themselves in the market numbers. the dow coming off its lowest close in nearly five months, the s&p 500 nearly four months. both have lost more in november than all of october. new figures show 972,000 homes entered the foreclosure process through the first ten months of this year, down 8% from the same period a year ago. the number of homes repo cessed by banks is down nearly 19% so far this year, so we can crack that up to be decent news and upbeat news from california, it will have a $1.9 billion budget gap during its next fiscal year,

that's far smaller, here is the good part, far smaller than it's seen in prior years and holds out the possibility that california may actually see surpluses within a few years thanks to spending cuts and tax hikes. those folks have their fingered crossed. hamas rockets killed three in israel as they threaten a wider offensive. martin fletcher is in tel aviv and has more. >> reporter: israel and the palestinians in gaza are on the major edge of a confrontation, neither side really wants but seems to be what happens. israeli rocket attacks against gaza targeting the militant leaders of hamas are continuing and continuing to attack rocket stockpiles from gaza. israel's goal is to prevent hamas from attacking israeli citizens with rockets.

there have been 850 akz ta, 100 in the last week alone. that's what israel wants to stop. at the same time hamas has been retilliating today at least 130 rockets fired from gaza into israeli cities. about 50 of those rockets were intercepted by israel's homemade anti-miss sill defense system but one hit the israeli town in the south, it killed three israeli citizens and now israel was using that of course to threaten more attacks, sent the southern commander of the israeli army said the assassination of jabari kicked this off he said is just the beginning. israeli troops are gathering on the edge of gaza, tanks have been reported moving south, a ground invasion is possible, it's definitely not what israel wants but israel's defense minister said this morning israel would do anything, he repeated anything at all to stop those rockets to make israel's

southern cities safe. martin fletcher, nbc news, tel aviv. >> thank you for that report. becky, breaking news on walmart? >> walmart earnings just coming out, seeing headlines, not an actual release. the stock is trading down, down about 1.87% on this. i can tell you they came in with earnings of 1.08 versus 1.07 the street has looking for but on the revenue line it's light. $113.9 versus the estimate of $114.9, so $1 billion light. the guidance they're giving is $4.88 to $4.93 a share. the street was at $4.94, so you can see at this point they are warning that the fourth quarter could come in a little light since we've already gotten the third quarter that beat expectations. that tells you about what the company is expecting from the holiday shopping season. we did talk to an analyst

earlier today who said likely this company would be drawing in lots and lots of shoppers with great deals but that raises questions about the margins. maybe that's where the issues are coming through. i see a release and seeing if there's any comment from the company on this, they're saying they're pleased with the financial performance for the third quarter, beat expectations but again did come in light, looking through just to see this. >> current macro economic conditions condition to pressure our customers. >> maybe the shoppers don't have excess cash to throw around. >> the holiday season is predicted to be competitive and if you noticed the comp. they're looking for in the period ending january 25th is 1.5% to 3.5%. you tell me how green a christmas is that they're looking for at walmart, 1.5 to 3.5. >> isn't the big deal probably for walmart. what is the issue is the prices they have to offer people to get them to come in so probably a

question of margin pressure if you have to basically give the stuff away it's not great for profits so walmart will see a lot of shoppers who come in, they will make tons of sales. the question is how profitable the sales will be. the stock was indicated lower and we'll keep track of it. we expect to hear from target later this morning as well. for the next two hours we are rolling up our sleeves to try to tackle the fiscal cliff. we have two guest hosts, george p. bush, son of former florida governor jeb bush, founding partner of st. augustine partners and jared bernstein, former chief economist to vice president biden, also a cnbc contributor and welcome to both of you. great to have you both here today. >> thank you. >> good to be here. >> we've been talking seriously about trying to tackle the fiscal cliff, it's a looming problem. you've seen the market's activity over the last week or so, and first of all i have to ask each of you, do you think

we'll go over the fiscal cliff? george we haven't gotten to talk to you for a while. >> i have a bullish sentiment, i look at the rhetoric from speaker boehner late last week and the president's remarks indicate there's wiggle room in terms of a trade that can be made between meaningful entitlement reform and revenue generation. the crux of the issue will lie in terms of where the revenue will be generated, whether it will be in tax increases but this is the first part of the negotiati negotiation, as in any business deal there is posturing but i feel a deal will be consummated because of the sense in our country after long and difficult campaign cycle that there's a perception that d.c. can't close deals and this is a time where we need to not only for our country but for our economy. >> jared do you think that happens before or after we go over the cliff?

>> i feel it may happen after it goes over the cliff. important movements particularly republicans, john boehner coming out after the election, i get t revenues have to be part of the deal. as george suggested there will be arguments about how you get there but i think when i look at how the politics line up the leverage embedded in going over the cliff and what that means to the president and democrats will push us there. i just want to say macro economically, going over the cliff is a bad thing, no question about it, but going over the cliff and staying over the cliff is a lot worse than going over the cliff and kind of backtracking back up there. >> the bungy. >> the bungy jump. >> we talked about that. >> the slope, the fiscal slope. >> george, where are you on the actual rate itself? there was a conversation boehner said we'll put revenues on the table, keep it at 35%, we'll find the deductions and from the president the first time out he didn't talk about 39.6 and so there was this view amongst some who wanted to hear it somehow he

was at the same place and boehner might be willing to do something. i was in d.c. yesterday and others, steve was saying maybe it is about 39.6. can boehner get there if that's the case? >> if you look at eliminations of deductions, exemptions, credits, it doesn't get to you where we need to comply with the budget control act so the fact that we are examining an opportunity to perhaps look at either on higher income earners, whether it's $1 million or higher as opposed to marrying ourselves to 250 is a step in the right direction. i think the fact that there is discussion on this front initiated by the speaker and behind closed doors we'll get in detail. for the first time we're close and why throw away the opportunity. >> can i just mention how many jokes joe would have made about being behind closeds doors and consummating and that whole thing and that's why joe needs

to be on the show and he's not. i'm doing a poor job that he would have made seven or eight jokes would have been made. let me just ask jared, the 39.6 in my mind seems like it is a bottom line, a starting point an an end point for the president. can you envision a deal being done on the fiscal cliff that does not have tax rates for the wealthy going to 39. 7? >> yes. >> really? >> the president did not end up where you ended up. he was asked directly is 39.6 your ending point and he was careful to say no i'm not shutting the door on that. it's very clearly his starting point and i would say more emphatically his starting point is the expiration of the upper income. so he believes correctly he ran on that, he won on that, and as he said yesterday even more people than voted for him support that, in the exit polls

so that's where he starts. i don't know that's where he ends. >> wait a second you both said something very interesting. first of all the 39.6 is one question. the other is, is it going to affect people at $250,000, half a million dollars, a million dollars. >> i disagree with george on this point, i have a very hard time envisioning 250 becoming 500 or a million. we looked at that a little while ago. you saw schumer and pelosi kind of made some signals. i don't see it and george is right you lose a lot of revenue when you go there. it makes the lift a lot heavier. >> you get from 250 to 500. >> you lose 40% of your revenue when you go to a million, when you go to 500 you lose less. >> do you think the million becomes the number? does that make sense? if joe was here he'd say it's a revenge argument. >> republicans are asking for an examination of deductions, exemptions, credits and once we get there we'll have a better sense according to the tax policy center, which is a leftist center organization, they think if we cap itemized

deductions for those earning $50,000 and above you generate close to $8 billion over ten years, doesn't quite get you there but close. >> for 50,000, so that is something a non-starter for the president to raise taxes on people who are down at $50,000. >> he's saying cap deductions. >> but you're effectively raising revenue and raising taxes effectively, an effective rate. >> it would end up being more punitive on higher income earners. >> i'm not arguing against it. that's a really tough sell to go back to -- >> becomes more progressive. >> it's a tougher sell when it's capped to 25, that's when you start hitting more people. >> you think that's a starter. >> i don't think it raises -- >> can we do 1 million and 50,000 together? what happens if i raise taxes on those making 1 million and higher and cap -- >> that was the point i was trying to make. >> what are the numbers?

>> it gets you close. >> you guys want to go behind closed doors? that's what joe would have joked. let's do it. >> basically my understand is if you cap deductions it generates -- according to the tax policy center, it was in the op-ed in the "wall street journal," in terms of the tax increase on income earners, i defer to jared on that, but over ten years, the point being that it gets you extremely close. >> but remember these things interact. >> what's wrong with that, jared? >> i really like what you're trying to do here. >> let's do it. >> let me explain why i don't think they'll work. once you cap at 1 million, then this higher tax rate which is whatever it is, 39.6, whatever it is above 1 million, that's the tax rate that's getting applied to the cap deductions now, so you're going to be now capping people who are a much smaller, something like less

than half a percent of the households earn 1 million or more so you're now getting your benefits from cap deductions on a very tiny group of people, so it's just, i don't think the math works. >> when you say the math doesn't work there's too much put on this group of people. is that what you're saying? >> you don't get the deficit reduction. the president said 1.6 trillion in deficit reduction. no way will you get that from 1 million threshold even if you cap deductions at 50,000. i'm quite certain i don't think you can get there. >> just as a point of clarification, 50,000, the number you were talking about on the deduction gets you 749 billion. >> he said 800, darned close. >> you go to 25,000, you get 1.28 trillion over ten years and if you lower the cap down to 17,000 as mitt romney wanted you get to 1.7 trillion. >> and then you're breaking, once you go to 25,000 on your cap deductions you're breaking the 250,000 threshold, president

won't go there. >> jared will be with us for the rest of the program as is george. george we'll talk more about your political future, too, we'll get into it here. >> you're on here for two hours. >> two hours away from solving the crisis. >> we'll get it done today. >> comments, questions on "squawk," views of how to save us from the fiscal cliff, shoot us an e-mail or on twitter. coming up next real estate dealmakers and homeowners worried about the fiscal cliff as capital gains taxes and other fees may rise. we'll talk to a real estate investor next about what he's expecting and a bit later in the program royal dutch shell ceo is going to be joining us, thoughts on where oil prices may be headed in 2013 and much more. "squawk" is coming right back. >> let's go. "squawk box" is rising above partisan politics. we're asking business leaders -- >> don't take the pin away, do anything but don't take the pin away. >> market pros. >> please send it over, we're

all for rising above. >> and you. >> if you don't rise above, you no he what you do? you sink below. >> to join us in calling on washington to solve the crisis that could send our economy into a tailspin, head to riseabove.cnbc.com and get your exclusive rice above pin, and show washington that you want something done to keep america great. "squawk box" on cnbc, rise above, and profit from it. ♪

[ female announcer ] today, it's not just about who lives in the white house, it's about who lives in the yellow house, the green, and the apartment house, too. today we not only honor the oval office, but we honor the cubicle, and the home office as well. because today it's about all of us. and no matter who you are, you're the commander-in-chief of your own life. ♪

beautiful shot of the laficker in st. louis. >> you're such a nerd. >> that is the laficurve. >> there is no laficurve. >> we'll tell you what we came up with after a couple seconds so stay tuned. check on shares of walmart, earnings came out above expectations but guidance came down, third quarter profit of $1.08 per share. revenues light and revenue forecast falls below what the street consensus is. much more at the bottom of the

hour. the rebound in the real estate market considered key to a sustained economic recovery. our next guest is involved in lending, commercial and residential, fernando deleone is the ceo of the deleone investment and capital group. >> thank you. >> let's pick behind which door, residential first. >> "let's make a deal." >> that's the thinking of the game. >> "the price is right." there you go. >> foreclosures are down and strong prices in housing value. we operate across the major markets in texas the top four cities and we have seen strong numbers year over year and rent growth in austin, dallas, houston, san antonio, has been in the 3% to 6% year over year rent growth so strong performance. >> so rent is killing it but would you be a buyer.

warren came over here a year ago and said if he could do anything with his money and made sense he would go up and buy up single family homes. he'd do it in florida, arizona, nevada, that was the argument. >> i think the mortgage market has to come back for the residential end user but i'd buy some land divisions, lot developments that will make sense over the next couple of years. >> behind the curtain of the commercial business. >> steven and i were talking a minute ago about retailers and e-commerce and we see a big impact from e-commerce when we buy a shopping center, we have to pay attention to our cost basis so that retailers who come in and occupy that space will have the ability to compete against e-commerce and do well and protect their profit margins so we're seeing retailers absorb. >> can they get there? >> they can. >> because they'll always have that nut. >> it depends what retailers. >> and the internet price is

going to pivot off the bricks and mortar price. >> it depends what retailers. some soft goods. you look at the auto parts retailers and the dollar stores, those are neighborhood locations that just cannot be replicated via e-commerce so some segments get hit hard but others are protected. >> is the big box over, is the big box dead? >> the big boxes are getting smaller so four years ago -- >> what are you going to fill the boxes with? >> filling them with dollar stores, backfilling them with auto parts retailers, neighborhood grocers, filling them with organic grocers with different types of retailers that need to be there. >> gas stations became banks, one of the great transformations. >> i don't want to bring everything back to the fiscal cliff, but i want to say suppose the mortgage interest deduction goes on the table, what does that do to the residential market, to the kind of somewhat favorable trends you were talking about a second ago? >> i'd put the question back to you and george and wonder if it is politically viable. >> a million to half a million

deduction. >> if it's politically viable, you get to 500, it has an impact on the residential housing market and it's a tough sell i think to the public. if it happens it has an impact. >> we have to leave it there. thank you for coming in. we'll have you back. when we come back earnings from walmart a few minutes ago, an early read on what wall street thinks of the numbers ahead of the holidays. time for today's aflac trivia question, what is the name of the loveable canine who stars in normand bridwell's best-known children's book series? the answer when cnbc's "squawk box" continues. isn't major medical enough? huh! no! who's gonna help cover the holes in their plans? aflac! quack! like medical bills they don't pay for? aflac! or help pay the mortgage? quack! or child care? quack! aflaaac! and everyday expenses? huh?! blurlbrlblrlbr!!!

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>> now the answer to today's aflac trivia question. what is the name of the loveable canine who stars in norman bridwell's best known children's book series? the answer, clifford the big red dog. >> aflac. let's take a quick look at stocks that could be worth watching this morning, first up limited brands, the parent company of victoria's secret posted earnings of 26 cents a share edging past expectations by two cents a share on revenue of $2.05 billion.

the company handed in full year earnings guidance below forecast sent the shares lower in extended hours trading about 1.5%. texas instruments slashing nearly 1,700 jobs worldwide. the company expects to save about $450 million over the next year as a result of the cuts and that stock is down as well about 2%. high end furniture retailer williams-sonoma posted revenue that beat expectations but like limited brands the company gave an outlook for the current quarter and full year that were below expectations, sent the shares lower in extended hours trading, similar from walmart. revenue is light and maybe more concerning their outlook for the fourth quarter and full year. they gave guidance for the full year which you assume is a fourth quarter outlook, that was below expectations as well. when we come back the ceo of veraphone will join us to talk

about fixing the debt campaign, what needs to be done to get a deal before we go over the fiscal cliff. look at futures at this hour, we had been looking at some green arrows across the board. walmart came out with earnings that were disappointing, a dow component and the dow futures are down about 11 points below fair value, s&p futures barely hanging on up by less than 0.3. when we come back we'll tale you more about walmart's earnings. stick around. coming up, billionaire investor wilbur ross has been investing in distressed companies and turning them into profit-making machines. now he's getting ready to pay higher taxes in 2013. find out how this business mogul plans on navigating choppy market waters when "squawk box" returns.

welcome back, everybody. we're looking right now at earnings from target. the company did come in with adjusted earnings of 90 cents a share. the street was only looking for 77, if that's an apples to apples basis. the stock is trading higher and this is different than what we had seen from walmart earlier this morning. the company talking about how they're also looking at earnings on an adjusted basis of 1.64 to

1.74. the street is looking for 1.51. their earnings per share would be 1.45 to 1.55. i'm not sure what the analysts know about. generally we go to adjusted numbers, but that would be a significant beat. the company talking a little bit and steve i'm digging through the release, that they are well positioned to deliver strong fourth quarter performance offering compelling merchandise at unbeatable value. >> do you have the full year view, becky? that's what i'm interested in. what are they saying about christmas? >> earnings of 1.64 or 1.74, gaap bases is what we go, gaap earnings per share 1.45 to 1.55. >> just -- >> hang on a second. the apples to apples is the gaap number. gaap basis 1.45 to 1.55, the street is looking for 1.51. before you get carried away with

the headlines we're quoting before the gaap numbers they're calling is 1.45 to 1.55 and the street's at 1.51. >> i'm hearing them say the third quarter was up a reasonably healthy 3.4%. >> walmart came in with 1.9% for same-store sales, a better number than you had on same-store sales. >> why you want to be careful making big macro decisions from single company reports. it's not the exact opposite but nearly the opposite. >> walmart matters more than anyone on the planet because it's 10% of total retail sales in the united states. >> target is a blip. >> it's a blip. >> it's a biggie but walmart is the largest employer except for the federal government in this country, walmart is 10% of total retail sales in the united states. walmart is the 8,000 pound gorilla in the room. anything they do is something we watch closely. david schick from stife

stifel nicolaus. was it a surprise to get the guidance for walmart which indicated fourth quarter is not what people are looking for? >> right. i don't cover target. i think there's a little softness relative to expectations in the comp. in the u.s. in that implicit guide relative to where much of the street was. >> you're talking walmart or target? >> walmart. that's right. >> for the walmart numbers, the stock is selling off, down by better than 3%. what is the big issue if it's not the guidance? >> i think the company has done a very good job of talking about areas in which they could improve the business. they had an analyst meeting in the fall which was bullish and highlighted essentially how they could go back and work on remerchandising the store. this company pursued the project impact strategy a number of years. >> the stock is down 3% and my

guess is it's because of margins. >> right, i think that they as a result of having seen some success have gotten sefinvestorn opportunity to run walmart better. it's hard to think of walmart as a boss toms up story. this number is a little soft but needs some context. this is the toughest comparison they've had in a very long time. this is the best two-year stat comp. in three years. what else is like this on a market share basis? mcdonald's. this is the best comp. relative to mcdonald's. >> it had its most disappointing numbers since 2003 we saw last week. if you're in a situation where you are offering value like mcdonald's does with its $1 menu, and you're basically giving things away is this a margin compression story for both stores? >> i know walmart believes in investing in price is the way to

hold business. again the business is a little softer here but we look at it as a comparable for how that customer is doing. i don't know if it's necessarily value or that that customer isn't enjoying some of the housing improvement, isn't enjoying as much of the stock market performance improvement in the last couple months. >> but basically you're saying you would stick with it because you still think it's a positive story down the road? >> i do. i think the company was off track strategically for many years and on track and when people can calm down and look at the two-year trend, the comparison, get some perspective, then the numbers are still headed in the right direction here. >> okay, david thank you. the street disagrees with you this morning but over the long-term we'll see how this plays out. david schick, we appreciate your time, sir. >> do we know how target is in.

>> the bid is at 61.60, ask at 61.50, bouncing around 12, 15 cents higher. >> target a little bit higher. >> a little bit higher but we'll see as people dig through the numbers. some of the initial headlines out on the wires before you saw the press release were not indicative of what the release itself said. this week we've been talking to some of the a.d.ceos who signed on to the rise above. this morning doug bergeron, ceo of veraphone. >> happy to be here. >> we've seen the risks out there today, also a rise above ad in "usa today" and you're wearing the pin, which is what we appreciate. why do you think this is so important? >> it's critical. we're going into debt another $3 billion. from the time i go to bed to wake up we're another $1 billion in debt. eventually this is chicken

coming home to roost. >> that's the best i've heard a ceo sleeping eight hours. >> when you look at the situation we have two guest hosts talking about, this too, there are tricky issues, difficult talk to get from here to there. what is your idea of the best solution in. >> it's complicated, i agree. i'm a little disappointed in the way it's been framed, frankly. it's been framed as how can we squeeze maximum tax revenues out of a no growth economy? frankly, if it was framed a slightly different way, where how can we get a growth economy, we can get better tax revenues in every growth economic cycle we've had under president reagan, under president clinton, tax revenues have been at record levels so i think the focus should be a little bit more on growth than it has been, but we'll get there. i am confident we will. >> what is your idea of how we should get to a growth economy? there's a lot of opinions. >> solve the fiscal cliff. >> the cheapest stimulus available to the u.s. economy is

a return of business confidence. business confidence comes out of everybody feeling a little bit better, the tone in washington being a little bit better. i didn't see a great tone yesterday, to be frank, but when people feel better and when businesses feel better they do more, they hire more, invest more and it's cheap, you don't have to borrow to get confidence. >> is this a chickle and egg situation? >> they all are intertwined for sure. frankly a topic that has not come up, i'm concerned about the unintended consequences if we go too far with some of the proposed solutions. charitable contributions, america gets away with successfully much smaller social safety net than let's say some of our western european fellow countries and we do so because americans are the most generous people on earth. they give to the red cross, to

the salvation army, to their local churches and synagogues. i'm not saying that all of that giving is driven by tax deductions but if we ratchet down tax deductibility of charitable contributions we could have an unintended consequence. >> 2% of gdp is charitable contributions, about $300 billion, is that right, about $300 billion? >> $320 billion. >> somewhere in there? does that make up for all of what's needed to actually get this place running? >> the difference in entitlements in america versus europe is significant. i believe personally that a lot of that gap is done through private work, money that you give to your church, to your synagogue makes its way into the community. many people, many wealthy people in america believe in redistribution. they believe in redistribution -- >> during the break we had a revenue deal on the table, just the revenue side. we need to see if you'd sign on.

i don't know if we have the other side, george bush's approval here. >> i don't know we're as close as you think we are. >> i'm ridiculously optimistic on this. >> he wants a deal. >> can we get a drum roll -- that's a bad joke drum. okay, there we go. we go 37% instead of 39 on the top tier, which comes in at 250, and we cap deductions at 28% of your, what, adjusted gross income, is that right jared? >> yes, something. i don't know if the 37 is right. >> that gets us where? does it give us the 1.6 trillion that is the president's mark? >> no, it doesn't get you to 1.6, because 1.6 would be the president's plan so that would be 39.6 as opposed to 37 but yes a higher rate and cap deductions would get you a good chunk of the way. >> but where are we on entitlements in this discussion? >> doug made an interesting

point. i think you're probably in the camp and i think we all are that says we need to broaden the base. >> yes. >> but you talked about taking a base broadener off the table, the charitable deductions off the table. i need you to talk what base broadeners to put on the table. >> i didn't say take it off the table at all. i said beware of the unintended consequences. >> what do you want to put on the table? >> everything. >> mortgage, are you cool with mortgage deductions? >> yes, although we have a fragile housing market. >> capital gains, dividends, they get preferential treatment, should they be on the base broadening table? >> they probably should but i believe they should get a lower marginal rate than ordinary income for a lot of -- >> what's your number? >> 20%. >> 20%. >> jared, isn't base broadening for some a way of saying president obama has to go back on his pledge not to raise taxes on the middle class.

isn't that what that means for some people? >> no, i think -- >> it says you have to increase for those -- >> no, he's always maintained that the base broadening only applies to 250 and above, that's his -- >> that's what he says. >> if you talk to somebody like david walker who has run the numbers, there are a lot of people who have run the numbers and say you can't fix the deficit unless you go -- >> and a lot of americans who say it's just not right that some people do not pay federal income tax. >> correct. >> that's definitely an argument. i mean at least in the context of thehe fiscal cliff, maybe the will be a grand bargain, look at increasing the tax liabilities of lower income people. i don't think you'll break that 250 line any time soon. >> i talked to a lot of ceos. they're happy to pay a little bit more but almost unanimously the sentiment is, can i get a guarantee here that this increased revenue that i'm going

to be providing is going towards deficit reduction, because washington in fact all states, all governments in the world have this inherent tendency of spending all the money you give them. >> do you like 37.28 with entitlement promises? >> that's a deal i'll take. >> can question get some signatures? >> entitlements on the table now otherwise that's a bait and switch. >> we're not rising above. we're transcending. >> i think entitlements on the table now is not something -- >> entitlements are on the table. i mean the president has cuts to medicare and medicaid in his 2013 budget which is what he's been working off of. you'd probably like to add social security to the mix. >> yes. >> that may end up there. i think entitlements have been on the table. >> we're the furthest distance from any election, put the items on the table. >> 37.28 with plenlz dges of

entitlement cuts. >> doug thank you for coming in. >> all right. >> we appreciate it. still to come, shelling out big bucks for natural gas, royal dutch shell ceo peter voser joins us on the company's plan to invest more than $20 billion by 2015 in production. up next businessman and rise above campaign supporter wilbur ross joins us, we speak to him right after the break. we are transcending this morning. "squawk box" is rising above partisan politics. we're asking business leaders -- >> don't take the pin away joe, please. >> market pros. >> send it over, we're all for rising above. >> and you. >> if you don't rise above, you know what you do? you sink below. >> to join us in calling on washington to solve the crisis that could send our economy into a tailspin, head to riseabove.cnbc.com and get your

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welcome back, everybody. we want to quickly mention notes from walmart's earnings release that are people looking at this point. the company is saying that it's having a review of anti-corruption compliance programs and that it has unveiled additional allegations with regard to the foreign corrupt act. those involve brazil, china and india, firand the company mentid into it the company has been informed by the doj and the sec that it is the subject of their respective investigations into possible violations of the fcpa, which is the foreign corrupt practices act, that combined with what walmart told us about the outlook for the full year which gives you expectation that maybe the holiday shopping season is not going to be as profitable for them, those two things combined are pressuring the dow today because walmart is a dow component right now down

3.6% when we came in. the futures had been indicated up between 40 and 60 points, once we got the walmart news it dragged down the entire dow jones industrial average and add this to another day of red arrows at the start of trading. >> you have to believe doj will make an example of them in a big way. people go after the foreign corrupt practices act but it's always sort of on the margin. this is a whole different situation. >> we haven't heard this that they were the subject of investigation. >> that's news to me. >> it's much broader in terms of talking about brazil and china that was not on the list before. so. >> i'm reading through the rest of the release to see if anything else jumps out. when we come back much more from george p. bush and jared bernstein plus we'll be bringing in wilbur ross, starts at 8:00 eastern. stick around. i was downstairs making coffee, and we heard it. it just came crashing through the roof,

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we are rising above the fiscal cliff this morning with a private equity titan, wilbur ross, chairman and ceo of w.l. ross and company. how concerned are you about this issue? >> very concerned because of its longer term implications as well as the very short term implications. >> you're about as focused a guy when it comes to intentions and business plans as i've ever known. is this something that's distracting you from investments you would actually make? >> well it's making us try to

accelerate realization this is year because the problz are rates will go up next year. part of the market weakness is lots of investors saying this may be my last chance to sell things at the lower capital gains rate. >> did they just figure that out? nobody saw this coming? >> well the market doesn't focus on anything until it focuses. and then it -- >> erskine bowles said the definicit is not a problem unti it is. let's talk about potential solutions, some of which are on the table here, talking about raising the income tax rate paid by what they call the wealthiest, i don't believe that to be the case at 250,000 especially for people living in new york. what is that view on that part of the solution? >> the one part that is complicated is if they do away with or minimize the deductions for state and local tax, that has a very big differential

thing by geography and i find it hard to imagine the democrats carry the high income tax states, new york, california, illinois, are going to do away with that deduction. that will hurt those states. >> is that in simpson-bowles the idea of doing away with the deduction for state and local? >> not saying simpson bowls but there's a lot of talk of doing away with all deductions. >> we talked about capping it at 28%. it's a killer for people -- >> i think he makes a volume id point, that in addition to the mortgage interest. >> that's the other question. >> others will be against it. if we look at it in terms of a hybrid deal between redux and think creatively in terms of how we can generate revenue in addition to trade on entitlement reform i think people can buy onto that. >> what is the number on ap.tal gains and dividends, what is the appropriate number? what doesn't change how you make

decisions? >> i think it's more complicated than that. whether it goes up a few percentage points i don't think is a big deal. >> 15 to 20 no problem. >> let's not say no problem. i think what's being obscured, it isn't that america is undertaxed. we're overspending and right now the whole focus is on the revenue side. you can't solve the bulk of the problem with revenues. it's not going to happen. >> let me say something about that. because while i take your point, it is the case that we have cut spending so far 1.7 trillion, spending cuts on the books, we have yet to do anything on the revenue. >> wilbur you'll stick around? >> yes, i will. >> i started off this hour incredibly optimistic about a deal but now i'm pessimistic and becky you once again were correct. i haven't figured about the politics of state and local

deductions. >> wilbur, george and jared is staying with us. >> i didn't mean to ruin your day. >> we have a little more time to hammer out a deal. if you look at futures we are, the dow futures are under a little bit of pressure down six points largely because of walmart. the s&p futures up by 1.6 and nasdaq up by almost three. >> the investigation by the doj that did begin last year so that part is not new. it's about who lives in the yellow house, the green, and the apartment house, too. today we not only honor the oval office, but we honor the cubicle, and the home office as well. because today it's about all of us. and no matter who you are, you're the commander-in-chief of your own life. ♪ well, having a ton of locations doesn't hurt. and my daughter loves the santa. oh, ah sir. that is a customer.

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the resurgence of american oil production. royal dutch shell peter voser on shocks to the crude market. plus the oil boom leaving one north dakota town short of housing and kkr is stepping in to pick upt slack. we'll talk to kkr's real estate chief and the head of economic development for williston, north dakota. >> the third hour of "squawk box" begins right now. ♪ well i walk back down, no i walk back down ♪ welcome back to "squawk box" here on cnbc. first in business worldwide, we are rising above and not backing down. i'm becky quick along with andrew ross sorkin and steve

liesman. joe is out sick today but we're hearing he is feeling a little better, we think he has a 24-hour bug. we hope he and blake are feeling better. we also have a full set, george p. bush, son of former florida governor jeb bush and jared bernstein, foreign economic policy adviser to vice president biden and senior fellow at the center on budget and policy priorities and wilbur ross is joining in with us, too, he's sticking around because we begged him too. we'll have more from all of them in a moment. first andrew has your morning headlines. >> we've got some earnings news this morning, dow component walmart reporting third quarter profit of $1.08 per share, one cent above estimates. revenues were light and full year forecast falling below street consensus. walmart saying an internal investigation has unveiled allegations of foreign corruption practices act in three more countries, so we're going to add china, india and brazil to the list, the issue

first surfaced regarding walmart's mexico operation and there was an sec -- >> i had said before the company said in the release it's been informed by the doj and sec it's been the subject of investigation into possible violations of the foreign corrupt policies act, but it's the brazil, china and india aspects that changed the story a little. >> so the earnings plus that news putting pressure on that stock, as you can see there down almost a little over 3.5% in early market trading or premarket trading, and target earned 90 cents a share. >> this is huge. >> a different story, 13 cents above estimates, revenues essentially in line. we've been talking about the fiscal cliff and market uncertainty all morning. the president urged leaders to prevent a year-end across the board tax rise. cnbc caught up with honeywell

chairman and c, o david cote. >> he understand this requires tax increases and entitlement reform and discretionary spending cuts that democrats and democrats have to work together, all that being said i'm sure there's going to be a lot of forth and back here between republicans and democrats, the congress and the president as they start to work their way to a deal, but i'd say there's strong recognition of the significance of getting a deal for the benefit of the american public and for the leadership it provides to the world. >> steve, you got something on this as well? >> there was a report out from the brookings institution, ten leadership lessones from simpson-bowles, quoted david cote saying during the debate, who are these people? who are these people if this were a company, i would fire you? this was two simpson-bowles commission in the middle of the debate where they reached a dead end, talking about some of the leadership and seemed to praise what david did. >> he even said the same thing

on our air, david cote said the same thing, as a company, you don't deal with this. >> and he was talking about the deficit commission. >> right. >> tomorrow the president and top members of congress are going to be meeting again, we're going to be watching that and more. we're also watching the situation in the middle east, israel launched a major offensive against palestinian militants in gaza killing the military commander of hamas in an air strike. naval gun pounds pounded the coastal strip, in response more than 100 rockets have been fired into southern israel from gaza and that's another story we're going to have to continue to keep our eyes on. steve. >> let's get a check on the markets. u.s. equity futures as becky said, we came in with green arrows and now we have mixed arrows. green and red. there's the fair value board really unchanged essentially across the board so what little pop we thought we were going to get seems to have dissipated with that walmart news missing revenues, although target coming

in beter than expected. overseas in asia taking a look at those stocks again, mostly to the downside, only japan to the upside, by a decent 2% right there but everybody else down more than 1.5, and going over to europe, i think that was mixed, too, right, no, that's all down now, about half a point more or less with a little more in germany. looking at energy, we had a big pop yesterday in gasoline and in oil that came from and it's continuing today that, came from the unrest in the middle east. that's up although it is well down from where it was earlier this year. becky? >> big focus on energy this week, after forecasts that the united states could overtake saudi arabia as the world's largest oil producer by the end of the decade, it's certainly going to be a topic of interest at royal dutch shell's investor day in new york, where we find our sharon epperson, she's there with a special guest. sharon? >> becky, i am indeed with peter voser, here with an exclusive

interview with cnbc. thank you very much for being here. we did hear from the international energy agency this week, their forecast variable saying that the united states will be the top producer of oil and gas before 2020, will be energy independent in 15 years. do you think these predictions are realistic, too optimistic? >> when we look at these scenarios and compare them to what we have actually we are very, very close to the same scenarios. they also confirm the very important role of gas, for example, worldwide but also in the u.s. so i think the u.s. with the revolution in light oil, the opening up alaska, more findings in new mexico, it's to drive energy independence and policies and investments. i think the u.s. can really grow in a tremendous way and become independent and even start to export. >> you say a lot of ifs here and

a lot of it has to do with the infrastructure. when we last spoke in may it was in port arthur, texas, at the commissioning of the expansion of the motiva refinery, the world or nation's largest refinery, 600,000 barrels per day. couple weeks later there was a glitch there, the refinery has been shut down, certain units. where does that stand right now? >> it's very good pro, the motiva team where the refinery is managed team and the port arthur team have done a great job repairing that and as we said previously we are working towards early 2013 restart and we are well on track on that, and also comparing the cost estimates which were in the market at the early stage, we are significantly significantly lower than that. all in all i think a good story now how we have recovered from that and how motiva is driving that. we're pleased with that. >> this is a $10 billion project you spent on this expansion.

we've also seen some problems along the east coast after sandy. there are a lot of issues along the supply chain that really need to be corrected perhaps before we get to these projections, even if we're able to produce as much oil as the international energy agency is saying, will we have the infrastructure to support it at that time before 2020? >> you're mentioning an important point here. infrastructure is needed. with our experience when you start to produce infrastructure will follow, so it's either we are investing as oil companies or we're asking oil companies to invest in the mid stream and to the downstream which is pipelines and terminals, refineries et cetera. i think these will come. clearly the company needs more infrastructure, like light oil or oil shale gas is not in the normal centers like we used to have at the gulf coast, et cetera, so therefore investments in pipelines, gas facilities and therefore also refineries will be very important but normally

when the natural resources are there, the investments are coming. let me also be clear, we need an energy policy which actually sets the right incentives for companies like ours to invest. let's also remind all of us that our industry doesn't generate a lot of jobs, but the product which we are producing like chemicals, they can be used to reindustrialize the u.s. and generate hundreds of thousands of jobs and i think that's where we should focus on. >> you brought up two important points about regulation which i want to get to in a moment but also about intrastructure and what we're seeing in driving the boom in oil and gas from unconventional sources how we get them in the u.s. but how we export some of those. tell me about some of your plans, you're investing quite a bit of money in natural gas, focusing on natural gas. what are your plans here in the u.s. and globally? >> i think we have first of all globally integrated gas business

is 25% of our business in shell. it's very well developed, very profitable business which we have across the world. the next steps which ewe are doing is spending 20 billion u.s. dollars over the next few years. >> $20 billion in three years? >> in three years. i think it's in the longer term the advantages of gas are very clear. it is affordable. it's available, abundantly available and it's also acceptable from a climate point of view because it has much less co2 for example, than coal. we take a 30-year view when we are investing. coming back to the u.s., we are pursuing four options here in the u.s. to do something with the natural gas. one is to go into chemicals which then can be used for manufacturing industries. second one is using gas to go into liquids, generating synthetic diesel, base oils, et

cetera. the third one is gas intertransport for trucks and shipping industries and the last one is the exports out of the u.s. so we're working on all four of them at the moment. >> you have the world's largest gas-to-liquid plants in qatar already. are you looking to do the same here in the u.s.? and where? >> that's correct, we started that $20 billion investment in qatar, it's up and runs smoothly, it's proprietary technology. we're looking at the gulf coast to build the same in the u.s. it's early days. we are scoping, looking at exactly how to do that but that's one of the projects which we're looking at. to actually use the advantage feedstock to bring it into the bigger liquids markets, into the diesel market for example et cetera. >> peter i believe wilbur has a question for you back in the studio. wilbur? >> hi, peter. are you as optimistic as i am about the outlook for shale gas

in china? >> yes, thanks for the question, wilbur. i'm very optimistic for shale gas in china. we are the biggest shell in china, we in sichuan and two big blocs in fuchuan and jaiqu. china plans to progressively start to grow that. it is more complex than the united states but we are very optimistic that we will find actually bigger reserves than we have in the united states in terms of shale gas in china. >> peter voser -- do you have a very, becky? >> go ahead, sharon, sorry. >> the last thing, everyone wants to know about gasoline prices and are they going to stay down, 30-cent drop in the next month, or with all of the oil and gas coming out are we going to see even cheaper gas coming? >> i think if you refer to gasoline pump prices, et cetera,

that's still a world market price, not a regional price normally. what we're seeing is demand has come down and hence there is sufficient supply available at the moment and hence we would see weaker pricing volume. but the demand will come back and therefore will push the supply nfl quite clearly again and i would still see in the longer term slightly higher prices than what we have today. and don't forget your political issues, they may drive short term also prices up. >> be happy with $3.50 gas while we have it. peter voser from shell. back to you in the studio. >> sharon and peter, thank you. wilbur, that's an interesting point if china has more reserves of the shale gas what does that mean in terms of our plans that companies are trying to export it. would that still happen? >> china will be more expensive, it's farther below ground.

>> you mentioned about geologically it's more difficult. >> i'm no geologist but i'll babble some words, it's early paleozoic to late paleozoic. there's been more tectonic in the shale itself. instead of having long, flat reservoirs here they're lickly to be chopped out meaning you get less out of a given horizontal well so instead of two bucks cost, might be five or six, that's still a lot lower than the actual price of imported natural gas into china, which is around $14. >> wilbur i'm glad we have you here. we're going to keep you here. >> they're importing from eastern siberia, i withent there and did a story on it. coming up bridging the partisan gap to avoid the fiscal cliff. we've been pushing our guest hosts all morning, we'll lock up an agreement and get signatures.

plus a private equity power player taking a role in city planning, we'll talk to the head of economic development for williston, north dakota, they have outgrown their infrastructure. [ female announcer ] i found the best cafe in the world.

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welcome back to "squawk box." let's talk shipping with wilbur ross. you're back here. you're a character i think in "dynasties of the sea" is that right? >> i don't know if i'm the character. i'm the subject of the book. >> i think everybody as a character unto themselves. >> there are some genuine characters in the book. >> lori ann's book, but you think that we're at a bit of a bottom in the shipping business. >> i think the bankruptcy filing yesterday of osg will go down as the poster boy marking the emergence of the bottom. i don't think we're quite there yet but the outcome of osg i think will lead us to the bottom. >> you have an interest, we need to be clear. they chart your ships. >> eight of our ships. >> you're not affected because you have deals with them and they're current on the charters. >> they're current on the charters, they prepay us every month so we have our november payments. we believe they want to keep our vessels, there may be a

conversation about rates but we don't see the vessels just coming back. >> do they get tied up in a bankruptcy proceeding? >> not if they keep making their payments. >> right, okay. >> are we going to break? >> no, back to our conversation about the fiscal cliff we're going to solve today, back to our conversation about the fiscal cliff dominating conversations from wall street to washington. i sat down, we'll go back to barney frank yesterday and we talked about it. take a listen to what he had to say. >> sequestration is a terrible idea and that could be very disruptive and if we go in to sequestration, yeah, i think that's awful. if the taxes run up on everybody for a month or two, it would be a temporary bump, it would be slowing down the expansion which i think is coming but you could undo it. >> i want to get everybody at the table to react. we have george p. bush, jared bernstein and wilbur ross. if we go off two or three weeks like he says does that make

sense to you? >> the encouraging positive news is we can retroactively apply an entitlement reform package apply beginning january 1 where the day after the budget control act takes place we can mitigate the effect of falling off the cliff or the slope or however we want to characterize it, but as we were discussing before, that's not the ultimate ideal situation. >> who has more leverage after january 1st? >> a lot of the polling data indicates republicans would be blamed but i think great leadership puts aside polling data and realizes we have divided government, that we need to get together, find consensus and close deals. >> i think i know how you'd answer that question. who do you think has more leverage? >> i don't think anybody has the leverage, because it will be political suicide for everyone i think to go off the cliff. >> what happens to the market on january 2nd? >> it goes down.

>> how much? there's still the perception we'll get a deal in two or three weeks. >> no one in the administration will know any more about the issues two weeks after january 1st than they did two weeks before. >> is there any common sense you can offer these guys in washington about how to solve this just from a business standpoint, if this were a problem you were confronted with. >> yeah, i think they're articulating it wrong. nobody is talking about spending cuts. we're talking about slowing the rate of spending increase. nobody has spending cuts on the table. it's the rate of increase, even paul ryan's was going to grow spending at 3% or so a year. >> what would you cut, wilbur? >> hmm? >> what would you not slow but cut? >> you have to deal with medical, for example, talking about the reform in health care is a joke if you don't deal with medical malpractice. there's been no talk about that at all on either side of the

aisle. that's a joke that leads to overtesting, too expensive insurance policies. malpractice is not inherent in providing universal health care. >> a couple of points. first of all, wilbur raised the bar by the way, if you're talk being not just slowing the rate of growth of spending but cutting spending that makes the solution a lot harder. i'm not saying you're wrong. i happen to disagree with you. >> i didn't say we should cut actual spending. i said that the verbiage about it is wrong because we're not cutting spend willing. we' we'readjusting the rate of growth. >> we haven't talked about the fact that everybody up there in washington agrees with 98% of the tax policy that should reset which is of course the middle class, and the president did make a very strong argument for at least getting that off the table. i think that would help because i don't think that markets start reacting badly january 2nd. i think markets start reacting

badly well before that. >> they've already started. >> but the trade-off the president proposed is not a trade-off to say give me what i want, which is the middle class relief, and i'll give you a framework for negotiations. that's a sucker's punch. >> we have 35 minutes to come up with a solution. >> you said a sucker's game? >> yes. >> becky ruined it. >> in reality, if i could just keep the blinders on -- >> thank you for being here. george is going to stick around, jared will stick around. up next more on walmart -- with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track.

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welcome back to "squawk box" on cnbc. i'm courtney reagan. i want to get you up to speed on walmart. it released quarterly earnings in the company's 8k filing something was noted we have not seen before, inquiries or investigations regarding fcpa violations have been in a number of foreign operations including but not limited to brazil, china and india. previously we knew that these investigations were going on in mexico, now it looks like there are additional allegations of potential violations in three more countries potentially more because of the wording, it says "not limited to."

so we will get you more information when we have it. the company putting out a statement more or less saying the same thing we have inquiries and investigations regarding these allegations. we'll bring you more when we have it. for now, we'll come right back. our abundant natural gas is already saving us money, producing cleaner electricity, putting us to work here in america and supporting wind and solar. though all energy development comes with some risk, we're committed to safely and responsibly producing natural gas. it's not a dream. america's natural gas... putting us in control of our energy future, now.

welcome back to "squawk box," just a couple seconds away from cpi and weekly jobless claims. we get right to rick santelli with the numbers. >> october cpi headline up 0.1. strip out food and energy up 0.2. empire manufacturing down 5.22, that comes after an unrevised minus 6.16, but not as bad as minus 8 to 9 that we were looking for. jobless claims, oh my goodness can this be right? there may be some distortions, it walloped up to 439,000 from 361,000, so i am sure there's a story behind that, and continuing claims not to be outdone, had a market jumped, originally released and revised up to 3.16 and now they stand at

3.334 million. so these numbers obviously affected by something whether it's storms or whether it's other issues, we'll of course look towards some of the guidance that we get. if we look towards the market the guidance is the equities look like they'll come in lower for another day. we see interest rates, well, they're a smidge higher than the sub 60 level from yesterday and maybe the biggest story of the day today is recession in europe again? i don't know why that's a big story. the bigger story would be if there wasn't one. >> that is a great oint. we haven't talked about the recession in europe being declared for the second quarter in a row, right, because the bigger one would have been if it wasn't there. no huge surprise to see that it's happening. stick around, rick. let's bring in steve and you were talking about the jobless claims and this is because of -- >> rick is right it's a sandy effect. an article from reuters that quotes an analyst from the department that puts these out

saying that several states from the mid-atlantic in the northeast reported large increases in claims due to sandy and that's where we get that, i think most of that 78,000. we'll have to wait a while to see what the underlying trend is. we had the decline last week related to the fact people could not make the claims, offices were closed or the government didn't file with the federal government. >> or they didn't have power. >> we'll see sandy coming in economic, retail, gdp, unemployment, it's going to be everywhere. >> the expectation is that it's half a point. i get no solace the empire state was only down five instead of eight. the manufacturing surveys not done well but the isms have done well, there's a dissidence right there, and i'm interested in the cpi number because frankly i've got to stick to my guns, headline is not the way to make policy, that core is the way to make policy. why did you have a 0.2 increase

in the core level which is 0.1 higher than expected. it would not be in the core so i'm looking for the cpi table which is right there and i'm going to get a look and see what inside it, my guess is housing has been the thing that's been driving it, and there is housing shelter up 0.3, owners equivalent rent up 0.2, not so bad, household furnishings, apparel up 0.7, that doesn't make very much sense to me and there's airline fares which is not in the -- >> what is the year over year on the core? >> the year over year on the core, all items, 2%. we're there but again you want to look at the month-to-month, don't want to ignore it. airline fares up 2.4%, i wonder if those were one-off things. >> airline fares have been going up as we get into the holidays, airlines have done a good job cutting the number of planes they have out there so they can

charge more. >> how long do you estimate the dislocation on sandy, meaning we'll be having this conversation in when? >> at least 12 months because if you think about what happens, right, is you have it's going to distort the data, week to week, month to month for several months and 12 months from now we're going to have to be careful that our year-to-year comparisons are going to have an impact. >> in february if we're having this conversation are we going to say there's still an impact? >> you want to see in the next couple, three weeks, claims come back to normal? that should wash through. >> downside from sandy for the next at least three months, and then after that you're actually going to see some stimulative effects with rebuilding. >> and why is that not baked into the cake even in the next couple of weeks as some of that has got to be in the soup already. >> it's baked into the forecast but not the incoming indicators. >> jared, also with this report

you get the jobs report and earnings number on a nominal basis and the overall inflation. tell us what real earnings are and i'm seeing here average weekly earnings for all employees on private non-farm payrolls falling 0.2%. >> real earnings, very interesting. >> they are losing ground. >> yes, i would hook this up to becky's earlier story on walmart and difficulty on the sales there, nominal wages have been growing slowly year over year, slowest on record going back to the mid '60s and i think it's 1.6, add in year over year inflation which you didn't tell me what the top line inflation is year over year. >> it's 2.2. >> 2.2 so that's negative real earnings and that's -- >> average americans are feeling like they are making less money. >> average americans a pinch in the paycheck and this has relevance to the payroll tax break which expires in a couple of weeks. >> jared there's not talk about extending that on either side. >> yes, there is, not so much

that but something like that, there's been talk about is this a good time with paychecks as squeezeds as they are for the tax bump to disappear and frankly i don't think it is. >> if you're talking about the massive negotiations that are taking place, george, what do you think about a discussion like that? is this the time to continue that payroll tax cut? is this a tough line to draw in the sand? >> there's been recent literature discussing that as an option and again, closing a deal before the end of the year would be ideal and i've heard it said a deadline in d.c. is the only way to make action. i think the president said that himself yesterday in his press conference so reextending for a year and coming up with the grand bargain may be a better overall solution and strategy. >> would that go for everybody or just for part of like americans who are kind of on the cusp who really need that the most? >> probably it would be pretty broad. remember the payroll tax break affects pretty much every wage earner, although it is capped at

110,000. so it's somewhat progressive. the discussion has been we don't want to do that again because people worry about the social security trust fund if you're taking revenues about that. there has been a discussion replacing maybe the work and pay tax cut. this is not a great time to take $100 billion plus out of the economy with the unemployment rate elevated. >> the unemployment rate the cbo isn't going to go back to 5% until 2020. when do you deal with it? >> i think temporary measures like the ones we're discussing would be helpful in the short term. ian hatzi from goldman sachs was on, strongly ad kit indicating we don't let the tax cuts expire. it doesn't hurt you on the deficit as long as it's temporary. >> if you tie it to the unemployment rate are we talking about temporary relief for the next three years? >> it doesn't have to be turned on until the unemployment rate reaches five. >> i have now read 75 economic reports on the economic impact

of the fiscal cliff, not a single report edge-to-gdp from deficit reduction. not a single one. >> that's because that's a longer term equation. >> not near term. >> the cbo -- >> not near term. >> not near term. >> it adds to gdp. >> we have to look at longer term. >> we still have about 22 minutes to solve the problem. but in the meantime private equity power player kkr taking a stake in development williston, north dakota, after a burst of growth in the last few years from fracking and up next we'll talk to kkr's global head of real estate and city of williston's head of economic development, all that coming up in a moment. if a budget is not agreed upon by congress, americans in the top 1% will see a federal tax increase of over 7%. for many, nexium helps relieve

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private equity firm kkr plans to develop housing in williston, north dakota. joining us to discuss is ralph rosenberg, kkr's global head and

tom rolfston. i don't think anyone cares about the fiscal cliff given the growth in the city. >> you hear about hurricane sandy, we have the trade winds, growing at leaps and bounds, counter cyclical to anyplace else in the country. >> what is the unemployment rate? >> about 0.5%. >> negative. right? you don't have enough workers. >> yes. >> at the peak of the great recession, the unemployment rate in north dakota was 4. %. now it's about 3% in the state. >> ralph, does he offer you any incentive to do this? >> no, he created a business environment that was friendly and conducive to giving us zoning and entitlement approvals. they created confidence in the community to really induce us to come in to take advantage of an incredible supply demand and balance in the marketplace. >> is there any other place in the country you're thinking

about doing this? >> no, williston is the center of the balkan shale. they have a lot of confidence what we're seeing through our energy investments, private equity energy team in terms of the need of housing. >> this isn't temporary housing. this is a full-on, explain what you're doing. >> can we get an idea of the numbers, what to what? >> there are 12,000, 14,000 people five years ago and we're 25,000 permanents and probably another 10,000 temporaries. >> more than doubled. >> what do you see in the next five years? >> double again, maybe triple. >> the important thing to point out the permanent housing stock is about 6,800 units and given what tom mentioned in terms of actual number of permanent employees in the area is a dramatic undersupply of permanent housing so we're actually building a neighborhood, 810 multifamily units and 727 single family home lots, neighborhood with parks

and trees. >> i assume kkr can't be the only investors coming to you saying we want to do something on this magnitude. >> they're certainly the largest scale. we have to solve problems 100 at a time, this is 1,000 at a time so we really like this kind of thing but there are probably a half dozen equity forms looking at the market and trying to get in, and do something on some kind of scale. >> i was a reporter in florida and i report on the buildout of florida in the 80s. growth comes with constraints and costs. what are the hurdles going from 10,000 to 25,000 and double again. >> the best example is walmart. starting rate $17 an hour, short 125 people, $25 an hour overtime and but the challenge is we get 100 to 150 people a day looking for jobs. if you don't have housing you're not going to last and we're

tired of people living in their cars and that type of thing, we regulated them out so we want to become, this play is going to be around for 50 years and so make an investment, build a town, a community. >> there's been a history of boom towns and bus towns. are you confident in the 50-year forecast? >> yes. >> you must have confidence. >> we do, we have information from sampson, a private equity platform we control in the energy shale and we have access to hess and haliburton and slumberge and it points to a 40 or 50-year -- >> can you give us the math in terms of are you renting properties, selling some properties, how much they're going to go for, how much is it costing to build, what kind of leverage involved? >> sure, i can hit all those questions. there are 810 multifamily units, rental apartment units and there are 727 single family home lots

that will be sold to local housing developers. the finished price for those homes will be somewhere between $200,000 on the low end in terms of town homes up into the mid 400,000s. if you think about it in terms of the affordability index, the workers up there are earning $80,000 to $120,000 a year so they're affordable and the multifamily allows the renter who is a permanent resident but a renter to be able to rent product. >> what is the average single family home go for in williston right now? >> we'd like to say 250, 300. >> does anybody ever sell if there's nowhere to move to? >> people who are selling are people who were kind of, like the idea of retiring in a sleepy little town and suddenly their house is worth twice as much, their kids live somewhere else. >> there's a history over the course since the industrial revolution in boom towns, a huge

portion of the profits go to the real estate and not necessarily the thing that caused the boom for example silicon valley. >> kkr hedged their bets, because they've got the stuff coming out of the ground on tuesdays. >> we obviously have both sides of the trade, in fact i wouldn't say we hedge it, i say we double down because we're actually taking the confidence out of our energy platform and extrapolating that confidence to the real estate infrastructure required to support the energy. >> george will tell you the last time he was in the town you had to sleep in a car. >> absolutely. >> wow. >> one of the service companies booked the hotel for three years forward so i had to sleep in my vehicle. >> you should have called me. >> a standing invitation. >> ralph, tom, we have to run. >> tom you have a good bumper sticker we should show jim cramer. >> bakken boo-yah! the mad dash to the opening bell, we'll check in with said

jim cramer at the new york stock exchange. "squawk box" is rising above partisan politics. we're asking business leaders -- >> don't take the pin away, joe, please, do anything but don't take the pin away. >> market pros. >> please send it over, we're all for rising above. >> and you. >> if you don't rise above, you no he what you do? >> sink below? >> you sink below. >> to join us in calling on washington to solve the crisis that could send our economy into a tailspin head to riseabove.cnbc.com and get your exclusive rise above pin, and show washington that you want something done to keep america great. "squawk box" on cnbc. rise above. and profit from it. do you trade? with scottrader streaming quotes, any way you want. fully customize it for your trading process --

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welcome back to "squawk box," everybody. take a look at the move in the yen versus the dollar overnight. it's something that traders are certainly paying attention to. you can cite this back to the

head of japan's main opposition party, calling for a move toward negative interest rates, which is why, you know, jarrod, we have been talking about this today, why is the 10-year yield so low at this point? >> it was below 1.6 this morning, i think it was 1.56. >> how do you square that with the whole fiscal cliff solution? >> as bad as we think they are here, look around. let's get down to the new york stock exchange, jim and david join us now, and i want to ask you both about walmart and what do you think about these stories? you guys are the best people to ask about it. >> i caution people, the worst-case scenario was halliburton, in the case of fines, i don't want to overplay that, i do want to overplay the fact that walmart has moved up. we haven't gotten recent numbers

that are so stellar, sam's club not so good. i'm thinking why is that sock so high relative to the others? it just wasn't doing so well. that was a mistakenly priced security. >> we talked to some analysts who said that walmart is really trying to fix the company. i think a lot of investors may have gotten pulled in. these margins are not going to be good margins even if they get comps on the stores. >> especially given how well they controlled inventory when they came into the sector. that has been the case across retail, a very strong point, we'll see how the market reacts. target is a somewhat different story. >> dollar tree, we thought maybe things had gotten a little bit better that people were going from dollar stores to walmart. dollar tree is telling you

that's not necessarily the case with its strong numbers. >> and then there's that market share donorship that we think is coming from jcpenney. >> and the more i look at jcpenney, i keep thinking what a bunch of overblown hope. there's a lot of real estate there. name me a big box retailer who wants to come in and take a jcpenney position? who wants to take one of their stores? and they have a lot of stores. >> if we go over the fiscal cliff or over january 1, when does the market really guess crazy? is it prejanuary 1? is there a three-week period? >> in the worst ones where we all know something bad is going to happen, in 1990 with iraq invadi invading kuwait, your bottom

came before, it did not come after. we have to keep monitoring to see when we are seeing heavy discounting. look at lockheed-martin, 5% yield, that's not going to be so great after taxes. one of the worst companies to be hit by the defense side of the hit. i'm looking at l & t, l and t. >> a little bit of turmoil at the top job there. it's overshadowed by petraeus, but they have had their own problems at lockheed-martin. >> there was lots of them. >> we'll let you get away with it. >> now you're saying there could be turmoil at the top. >> guys, we'll see you in just a few minutes, thank you. >> coming up, we're going to get the last word from george p.

bush and join me for "squawk box" office hours, you can do this on facebook.com/squawkcnbc. i'll see you guys online right after 9:00. >> tomorrow on squa"squawk box, dualing fiscal cliffs. we'll ask virgin america ceo david cush, how he's planning for the end of the year. don't miss tomorrow at 6:00 a.m. eastern. ♪

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"today" a closing bell event. how washington can rise above partisan politics, avoid the fiscal cliff and get the debt and deficit under control. 4:00 eastern on cnbc. >> let's get back to our guest host, george p bush and garard burnstein. what is going to change in the republican party, over the next two years? >> much like the markets, politics works in cycles as well and i believe there will be a reconstruction of the farther, there will be a re-examination in terms of our messaging to the gender gap. >> what is it going to look like? >> i think it will be younger and more isssocial issues, we a still the party of reagan and the party of lincoln, and we'll find our way back. >> what are you running for in